March 18, 2014 / 9:21 AM / in 4 years

UPDATE 2-Miner Antofagasta posts bumper dividend but profit falls

* EBITDA down 30 percent

* Payout ratio rises from 70 pct to 142 pct

* Worries over China credit weigh on copper outlook

* Antucoya project on budget, on time; now 70 pct complete (Adds CEO comment, background, detail)

LONDON, March 18 (Reuters) - Chilean copper miner Antofagasta paid out an unexpectedly large dividend for 2013, despite a 30 percent drop in annual core profit, opting to distribute cash rather than hold it at low interest rates.

Shares in the miner, controlled by Chile’s Luksic family, have long traded at a premium to its peers, largely because of generous payments to shareholders and because of a healthy balance sheet.

Antofagasta said on Tuesday it would pay an annual dividend of 95 cents, far above analysts’ average forecast of 38.9 cents and implying a payout ratio of 142 percent of net earnings, up from 70 percent last year.

“This significant dividend means that going forward we will hold less cash that we have historically,” Chief Executive Diego Hernandez said.

“We have been accumulating cash for some time but this money doesn’t earn high interest rates, as you can imagine, in this market. Then we decided to give back to shareholders through (the) dividend while of course ensuring that we have got enough money to go ahead with our portfolio of projects.”

Profit, however, was hit by falling metal prices and rising production costs despite a small increase in Antofagasta’s copper output last year.

Earnings before interest, tax, depreciation and amortisation (EBITDA), fell 30 percent to $2.7 billion, slightly below a company-provided analyst consensus of $2.74 billion.

Net earnings fell even further, down 36.4 percent to $660 million, eroded by an increase in taxes related to distribution of dividends outside Chile.

The Chilean miner faces a tough environment for its key product this year. Copper prices on the London Metal Exchange fell by more than 7 percent last year and are down about 12 percent so far this year on concerns over economic growth and credit availability in top metals consumer China.

“Antofagasta’s payout ratio is massive but that sort of level of dividend is not likely to be sustainable unless the commodities surge, and copper, as we have seen recently, has taken quite a beating,” said analyst Marc Elliott at Investec.

“Longer term I still view it as an expensive story as they face falling earnings in the next couple of years because of copper prices going down and they have a heavy capex profile ahead of them just to maintain production and with no material growth for several years.”


To battle a fall in production due to aging mines and declining copper grades, Antofagasta is focusing on its $1.9 billion Antucoya greenfield project and other brownfield expansions.

It hopes a $3 billion investment over the next five years will allow it to grow its output to 900,000 by 2018 from slightly above 700,000 tonnes currently.

It is also looking for opportunities to buy assets in Chile and abroad although nothing suitable has come up so far, Hernandez said.

Antucoya, one of the most capital intensive projects in the copper industry, is now 70 percent complete and is expected to start production in 2015.

The Chilean miner is also seeking to control soaring production costs through a review of its supply chain, procurement and work practices.

Its net cash cost rose 32 percent to $1.36 a pound in 2013 but Antofagasta targets flat costs this year, vital to maintain profitability in a fragile environment for copper.

Earlier this month, China’s first domestic bond default sparked worries over credit constraints in China where high volumes of the metal are held as collateral against loans.

This triggered a 9 percent dive in the copper price in just 2 days as many worried the stocks of metal used for financing might be liquidated into the market and smother the moderating demand growth.

“Some people believe that.. copper used as collateral could come to the market. We have looked into that and there is no clear indication that it will happen. Probably it will not happen. If that happens it will affect copper prices for a while, not too long, probably for 3-4 months,” Hernandez said.

Antofagasta shares rose as much as up 6 percent in early trading before turning negative.

The were down 2.5 percent by 1217 GMT underperforming a flat UK mining sector. (Reporting by Silvia Antonioli; Editing by Mark Potter and Keiron Henderson)

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